The law relating to Income Tax is one of the most complicated law of India. A number of different documents cover the various aspects of Income Tax provisions and one has to go through all these documents (sources) to have a through knowledge of it. These documents are known as ‘Sources Of Law Relating To Income Tax’ and are as follows
(1) Income Tax Act, 1961.
On the recommendation of Law Commission and Direct Taxes Administration Enquiry Committee chaired by Sh. Mahavir Tyagi, a bill was framed. This bill was referred to a select committee and was finally passed in September, 1961. This Act came into force from April 1, 1962 in whole of the country. Income Tax Act, 1961 is a comprehensive Act which consists of 298 sections and many subsections grouped under XXIII Chapters along with XIV Schedules. The Act contains detailed provisions regarding applicability, basis of charge, residential status, heads of income, clubbing provisions, set-off of losses, deductions, exemptions and assessment procedures involving appeals, penalities and filing of return etc.
(2) Income Tax Rules, 1962.
The provisions contained in Income Tax Act are duly supported by Income Tax Rules, 1962 that help in carrying out the purposes of the Act. These rules are prepared by ‘Central Board of Direct Taxes” (CBDT) by virtue of power granted to it (i.e., Board) under section 295 of the Income Tax Act, 1961. These rules deal with procedural part of the various aspects of Income Tax.
Certain Examples of Income Tax Rules
(i) Rule 3—Valuation of perquisites for calculating ‘Salary income’.
(ii) Rule 6—Prescribed authority for expenditure on scientific research.
(iii) Rule 7—Splitting up of partly agricultural income and partly non-agricultural income.
(iv) Rule 6DD—Cases and circumstances in which payment exceeding’ 20,000 may be made otherwise than by an account payee cheque or account payee bank draft.
These rules are made applicable by way of notification in the Official Gazette of India and are subject to the control of Central Government.
(3) Annual Finance Act.
Annual Finance Act is an important piece of legislation that updates! amends the Income Tax Act, 1961. It gives effect to the financial proposals of the government for the relevant financial year and is finalised at the beginning of every financial year. It contains
(i) Introduction of new sections to the Income Tax Act, 1961;
(ii) Deletion of certain sections from the Income Tax Act, 1961; and
(iii) Rates of Income Tax for an assessment year, rates of tax for deducted at source for the financial year and rates of advance tax for the relevant financial year.
(4) Circulars and Clarifications issued by CBDT.
The Indian Central Board of Direct Taxes (CBDT) is the apex institution that regulates the overall administration of the direct taxes (IncOme Tax and Wealth Tax) of the country. Section 119 of the Income Tax Act, 1961 empowers CBDT to issue certain orders, instructions and directions to the revenue department (i.e., Income Tax department) to assist in the interpretation of the law. These orders/instructions/directions are issued in the form of circulars/instructions and are required to be followed by the Income Tax authorities. These circulars clarify the ambiguities in statutory provisions and provide greater ease of administration.
(i) CBDT circulars are binding on Income tax department officials.
(ii) Circulars are not binding on assessee.
(iii) Circulars are not binding on CTT (Appeals) and other appellate authorities.
(5) Judicial Decisions/Case Law.
Judicial decisions are also one of the most important source of Income tax law.
(i) Any decision given by any High Court shall be applicable in the particular case.
(ii) Any decision given by the honorable Supreme Court shall be treated as law applicable throughout the country.
(iii) The decision of Supreme Court can be reversed by the Parliament by encasing a law contrary to such decision.